By Joseph Plocek
WASHINGTON (MNI) – Federal Reserve Chair Ben Bernanke’s monetary
policy testimony Wednesday fails to illuminate further the Federal Open
Market Committee’s reaction function, in part because he reviews past
decisions and says about the future only that “it will be especially
important to review incoming information to assess the underlying pace
of economic recovery.”
Bernanke spends most of the short eight-page written testimony
explaining again the decisions released in January. He recognizes that
recovery continues and mentions recent positive labor market
developments, but then warns that “continued improvement in the job
market is likely to require stronger growth.”
Unemployment remains elevated, Bernanke said, as he throws some
cold water on future prospects. He said the decline in unemployment was
more rapid than expected given below-trend growth.
This question has been raised by other analysts recently: how can
payrolls surge when growth remains in the middling 2% area?
Bernanke reiterated that the FOMC’s best guess is that 2012 growth
will look like the second half of 2011 (+2.25%), and that appears to be
the key reason to expect more accommodation from the Fed.
Bernanke noted constructive actions in Europe but said challenges
remain.
There is virtually nothing new on monetary policy. Bernanke
repeated the FOMC language about being “prepared to adjust” SOMA
holdings.
Bernanke concluded that a ‘highly accommodative’ stance is
consistent with Fed goals as unemployment is elevated and the inflation
outlook subdued.
The February Monetary Policy Report contained a special section
discussing recently heightened forecasting uncertainties. These are
especially noted for growth estimates.
** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]
